Venture capital confidence in business conditions ahead retreated in the second quarter, with Facebook’s bungled IPO casting a shadow over prospects for startup company liquidity, according to the Silicon Valley Venture Capitalist Confidence Index.

Concerns about the continuing financial crisis in Europe and regulatory hurdles in the life sciences sector contributed to the malaise.

The second quarter index came in at 3.47 after a sharp first-quarter rise lifted the measure of sentiment to 3.79, according to a Tuesday press release. The index is calculated by Mark Cannice, a professor at the University of San Francisco, and based on a June survey of 30 area VCs.

It is intended to gauge the venture community’s outlook for the investment environment over the next six to 18 months relying on a five-point scale, with five representing high confidence.

Despite the decline, VCs remain excited about technology trends such as cloud computing, mobile computing and the social Internet. “The Facebook IPO might have flopped, but the disruptive trends around mobile, cloud and social remain very much intact,” Venky Ganesan, a managing director at Globespan Capital Partners, told the survey. “Ignore the Cassandras of the world and seize the moment to change the world.”

“While the Facebook debacle signaled the recalibration of investor expectations around social media and reaffirmed the importance of earnings and customer ROI,” offered Allegis Capital Managing Director Robert Ackerman, “the broader innovation ecosystem in Silicon Valley is very much alive as the entire information technology substrate is in the process of being redefined and reinvented.”

Photo courtesy of Shutterstock.